Why Apple can't control its Chinese factories

[FarCenter]

While Apple is to be applauded for auditing its suppliers in an attempt to identify poor working conditions, its suppliers are so powerful that Apple can't effect real change - and nor can any other tech company.

By Malcolm Moore in Shanghai - Published: 12:27PM GMT 05 Mar 2010

http://www.telegraph.co.uk/technology/apple/7375684/Why-Apple-cant-control-its-Chinese-factories.html

Last year, after a 25-year-old Chinese university graduate committed suicide at one of the factories that makes Apple's iPhone, executives from the Californian company flew in for an urgent review.

Sun Danyong threw himself from the 12th floor window of his apartment block after an iPhone prototype went missing on his watch.

Before he jumped, he sent a message to a friend claiming that security staff at Foxconn, the notoriously secretive Taiwanese company that makes all of Apple's mobile phones and the upcoming iPad, had beaten him severely.

The allegations deeply shocked Apple's management, and there were calls for Foxconn to be fired. The Taiwanese firm, which operates a series of mega-factories on the Chinese mainland, has been described as "inhumane and militant" by China Labour Watch, a US-based NGO.

However, at the end of the day, Apple was powerless to change the situation. According to analysts, Foxconn and its two rivals, Quanta and Pegatron, are the only three companies in the world that are capable of quickly mass-manufacturing Apple products of the right quality.

Industry insiders said it is this triumvirate, and not Apple, that really holds the power in the relationship. "In the near term, there is absolutely nothing that Apple can do to shift away from these companies," said Edward Yen, a technology analyst at UBS.

"Apple's biggest concern is whether the factories can deliver on time, and get the quality right. There really aren't that many players who can do that, major players who have the skillset and flexibility," he added.

<SNIP>

[DJ13]

1. So near slave labor conditions are accepted if production is good?

[FarCenter]

3. It is not a matter of accepting -- they have no say in the matter

Also from the article --

Apple controls its research and development, dreaming up its products in Cupertino, California, and then passing the blueprints to its suppliers.

However, elsewhere in the technology industry, the relationship between big name brands and the triumvirate is changing rapidly. Analysts said Apple's rivals, HP and Dell, have even less control of their supply chain. "With Dell, HP and Acer, they pretty much say to Quanta and Foxconn: 'Show us what you've got'," said Mr Yen. It is the suppliers, rather than HP and Dell, who come up with new designs and technology. Both Quanta and Foxconn have heavily invested in making sure they are at the cutting edge.

[DJ13]

6. Theres always a choice... if they are really concerned

Apple is sitting on over $40 billion in cash reserves, they could always buy Foxconn, or even set up their own manufacturing.

Dont believe the excuses.

[FarCenter]

28. Foxconn's market cap is over $110 billion

Wiki puts them at 550 thousand employeed in 2008.

http://en.wikipedia.org/wiki/Foxconn

[DJ13]

32. That avoids the other possibility

How much to build an Apple specific manufacturing facility?

Foxconn is a manufacturer for more customers than just Apple.

An Apple specific manufacturing facility wouldnt cost even 1/5th of Apple's reserves.

Just admit it, Apple likes the cheap labor a company like Foxconn based in a totalitarian Communist country provides, and they only act concerned now because the secrets they always knew about made a couple of headlines.

They CAN do something, but the bottom line is more important than human rights.

[jmowreader]

37. They'd have to do it somewhere outside California

Apparently the regulations in California are extreme--extreme enough to cause someone to not be able to afford to set up a manufacturing facility there.

Now here's the deal: Apple is sitting on a $40 billion cash hoard. They have enough cash on hand they could afford to go to four cities with large, shuttered factories (Fayetteville NC with a disused Black & Decker factory comes to mind immediately, and there are a LOT of places in the Rust Belt they could go), buy the factories and set up automated manufacturing systems without coming close to depleting their reserves. It is completely possible to build an automated factory that requires almost no personnel to run it--Fuji has a printing plate factory in Greenville, SC. The manufacturing end of the building requires 30 acres, and four people work there: a supervisor, a person at the "uncoated" end where the aluminum coilstock goes into the coaters, a person at the "finished end" to make sure the boxes are coming out of the machine properly, and a supervisor. There should be no reason why they can't do the same thing with iPods or Macbooks if they use robotic cell manufacturing techniques. They wouldn't even have to use workers to push carts of components to the machines: Anheuser-Busch's brewery shipping departments use automatic forklifts. You can tell one "put five skids of Budweiser, three of Bud Lite, one of Bud Lite with Lime, one of Chelada, one Natural Light, one Wheat beer and six more skids of Bud on the trailer in Dock 121" (the six skids of Bud are going to a different place) and the machine will run around and do it. If it gets to the Bud stack and there are two fewer skids than it needs, it will send a signal: make two more skids of Bud and tell me where you put them" so it can complete the order. Substitute caps and integrated circuits for beer and you can see what I'm saying: they can beat China's labor costs by installing more automation than you ever would in a Chinese factory.

The American worker can produce a high quality product, which explains why, even as we speak, American workers are hard at work building BMWs, Mercedes SUVs, Hyundais, every brand of Japanese car, Panasonic capacitors. Philips products...shall I go on? It's obvious it makes good business sense to manufacture in the United States; why aren't the American high-tech consumer products companies doing that?

[Tesha]

43. You've never actually seen an ultra-high-volume "fine pitch" electronic manufacturing site...

...have you? There's a big difference between that and a coil-stock coating
plant or a beer brewery and there's also a difference in the sort of personnel
you hire.

This is not to say it can't be done in America; I've seen it being done. But
it's hardly done any more and it would require substantial investment
and re-training.

Tesha

[Cessna Invesco Palin]

49. Even if that were economically viable (which it isn't) all it does is move the problem...

...further down the supply chain. The components are still coming from the Far East. All Foxconn is really doing is final assembly.

[Catshrink]

2. Here's a solution:

Bring the manufacturing back to the states and create American jobs.

[FarCenter]

5. The US no longer has the manufacturing expertise to do this

Over the last two decades all the US "manufacturers" have outsourced their manufactureing to companies in the Far East.

There is no longer a base in the US to build back from.

[Demeter]

9. 6 Months

If that. That's how long it would take to build it back up better than it ever was. Provided the bean counters and MBAs are all locked up in China.

[dysfunctional press]

13. 6 months...???

to design, build, and stock high-tech manufacturing centers...?
AND train a workforce...?

:rofl: :rofl: :rofl: :rofl: :rofl:

[Demeter]

19. The Work Force is Here and Trained

there's plenty of empty factories in Silicon Valley alone, and more across the country. I have worked in this field. 6 months is a high estimate.

[dysfunctional press]

27. "6 months is a high estimate." i can't argue with that...

you'd have to be pretty high to think that they could get ipod manufacturing up and running in the u.s. in 6 months time.

either that, or completely unfamiliar with EXACTLY what it would take to do so.

[Demeter]

26. How Long Do You Think It Took Apple To Set Up Those Chinese Factories?

[dysfunctional press]

31. years.

[FarCenter]

16. It would take 6 months to design and order the manufacturing equipment

for a prototype production line. Another 6 months to get the prototype line up and running. Another year at least to get multiple production lines up.

Everything would have to be highly automated in order to get the quality up and production costs down.

And even then it would be exceedingly risky, since it is not clear whether we could get the right production machinery, secure parts from suppliers who no longer exist in the US or are not ezuipped to deliver the necessary precision and quality.

There is essentially no consumer electronics manufacturing base.

There is some industrial electronics manufacturing, but that is a lot different.

Same thing for the military industrial base. The cell phones would wind up costing $5000 apiece.

[Selatius]

20. Could it be done faster, though? We retooled to fight World War Two in less than a year.

Of course, a larger chunk of our economy was devoted to manufacturing compared to now.

[dysfunctional press]

33. the stuff being manufactured for ww2 wasn't the kind of high-tech equipment made today.

i don't think that they had a lot of dust-free sterile rooms in bomber production facilities.

[Codeine]

41. That was because building car engines

wasn't dramatically different from building tank engines or aircraft engines, and the skillsets that allowed workers to assemble auto bodies translated well to assembling aircraft bodies.

We still have a very extensive manufacturing base, but the skills and equipment required to make small, high-tech consumer electronics aren't what we've been doing for a while. It could certainly be accomplished, but not with the lightning swiftness with which we geared up for the second World War.

[Cessna Invesco Palin]

50. That involved repurposing existing factories, not building everything from scratch.

Which is basically what you'd have to do to get consumer electronics manufacturing on that scale running in the US. You'd effectively be starting from zero.

[Selatius]

11. Then fucking bring back the retired engineers and workers who did once run those factories.

Pay them double, triple what they made when they were younger and worked in American-made factories. Do it under a reconstituted WPA or PWA like FDR once ran. They blew 800 billion dollars bailing out an oligarchy of corrupt, decadent bankers who crashed the economy in a bid to become even more powerful billionaires.

That 800 billion could've rebuilt the entire manufacturing capacity of the United States with enough left over to build the largest network of solar panels and wind power turbines and high-speed mass transit the entire planet has ever seen. They blew away so much fucking money that could've done us all good.

[WCGreen]

17. It really is a national security issue...

Could you imagine the Chinese, or in this case the Taiwanese, turning over sophisticated manufacturing techniques to their adversaries?

[Tesha]

44. We've *NEVER* run factories like these.

There's some low-volume fine-pitch manufacturing in the industrial
sector, but the volumes they do are nothing like the volumes we're
talking about here and their costs are much higher.

When consumer electronics flamed out in the United States, we
were talking about the sorts of products that you or I could
still put together with hand tools and a good soldering iron.

Modern fine-pitch electronics is nothing like that.

Tesha

[anonymous171]

15. Yes, China is famous for its highly skilled and educated workforce

:rofl: :rofl:

[FarCenter]

23. Actually it is

Tour the Peabody Museum in Salem, MA and have a look at the Chinese trade goods imported to New England in the 1700s and 1800s.

And note that these manufacturing companies are headquartered in Taiwan. We shipped a lot of work to Taiwan and other Asian countries to strengthen the anti-communist ring around China. Aside from Taiwan, you have Flextronics headquarterd in Singapore. So besides Japan and South Korea, there is a manufacturing expertise base among the several countries in Southeast Asia.

Once China stopped being communist, they have all moved to develop manufacturing inside China. Much of the high-end design may be done in Taiwan or other countries, with the production in China.

[Tesha]

45. You're probably being sarcastic but the truth is that China now has major sectors of its workforce..

...that can run rings around most American workers. They *ARE* highly
skilled and highly educated. And they're highly motivated to maintain
China's pace to become the world's leading manufacturing economy.

Tesha

[TransitJohn]

12. Do you think that

people will by the iPhone at $1000 instead of the $400 or whatever they run now? The cult of Apple is strong.

[we can do it]

14. Yeah Its Just Apple

:eyes:

[peace13]

21. Who really cares?

If Americans were smart they would put off purchasing the most modern devices and force Apple and the like to bring their manufacturing back to the US. The people have the power if they are willing to stop their addiction to immediate gratification.

[Demeter]

22. Tarrifs and Trade Barriers--They Work

and everybody except us has them and uses them to protect their national security, economy and workers.

[peace13]

39. Our politicians have sold us down the river.

The only power we as Americans have is that of the consumer. Don't buy the crap until production is brought back into this country. It is a matter of defense. We don't make anything necessary to keep Americans safe or healthy. We should all be outraged! Power to the people.

[glowing]

4. What did they expect when they moved into markets with atrocious human rights?

They knew by taking jobs away from Americans with these labor protections, they would get conditions that hurt people. I just wish there was a way to stop buying their shit.. However, then, we wouldn't have any technology... AND you know we are getting bamboozled on all technology items. Do you really think the world that predominantly uses cell phones is paying $400.00- $600.00 for a phone with an avg of $100.00/ mo bill to use it? Yeah right.

[FarCenter]

World cell phone production is about 1.2 billion per year

As far as I know, none of them are manufactured in the United States.

[glowing]

34. I believe you are correct.. Most electronics are from foreign markets..

Maybe a couple of pieces or parts or chips may be manufactured in the US, but probably not much. Its the high prices on the items that come into the US that is out of whack. People in countries all around the world use cell phones.. some of these places don't even have land lines built... why bother? You know they aren't paying rates like ours. You know they aren't paying outlandish prices for a phone. We are gouged big time for all tech products.

[Tesha]

47. Actually, most people around the world pay much more for their cell phones than we do.

But in exchange for that higher price, they buy the phones "unlocked" and
can use them with any carrier.

It's mostly only in America where the carriers subsidize your phone purchase
and then lock you into a two-year contract where you repay the subsidy
several times over.

Tesha

[Selatius]

7. This is what happens when you ship manufacturing equipment and expertise overseas.

You give control to somebody else who may or may not be on the same page with you.

This was done in the name of increasing profit margins and cutting labor costs.

They have achieved their goal of lowering labor costs, but at the expense of their own independence.

[Demeter]

8. Well, This Is Apple's Chance to Choose

To be a Good Employer,

or a miserable piece of Capitalist excrement.

[Tesha]

42. So who's mobile phones would you prefer to buy?

Hint: It's likely that *ALL* of the vendors use Chinese/Taiwanese vendors
for at least part of their product line. Nokia certainly does, although Nokia
also operates its own factories (in Mexico and the Far East) for their more-
expensive products.

Tesha

[mucifer]

10. poor apple I feel so sorry for them

:sarcasm:

[loudsue]

18. This is really dangerous. Look down the road a few years, and you

see that the United States has been left out of the so-called global economy that the American workers started.

It was our public schools and human rights that allowed us to tap into the finest brains of all colors and stripes and income levels. The republicans/Clinton benefactors (whom I know personally) destroyed all of that.

Now, who knows what our future holds? And what of those poor souls who are now manufacturing those products? Their lives are on the line due to their governments' human rights records.

The rulers want this to be a world of armies, not laws.

[sandnsea]

24. We've got to fight for workers rights everywhere

That's the only way we'll get our jobs back, by insisting on global labor and human rights. Then it won't be profitable for these companies to run off to the back corners of the globe to hide their shameful "business" practices.

[anonymous171]

25. What happens to human rights activists in China? nt

[sandnsea]

29. Note the word "we". Not "they". n/t

[femrap]

30. Give me a break.....

Apple knew damn well what it was doing when it moved its factories to China...a Totalitarian gov't with a horrid record on human and worker rights.

Won't it be funny when an earthquake, flood, or whatever takes down Foxconn....all the laptop makers use them. That is one of the STUPIDEST management decision ever.

One source for your products.

WASF.

[endless october]

35. given that Apple charges 4 times as much

as the competition, why does it need to make anything in China?

[Tesha]

48. What does an unlocked Nokia N97 cost? Or an unlocked Google Nexus One? (NT)

[OHdem10]

36. Authoritarian Governments can be hard nuts to crack. We have

seen that time and again with Trade Policy.

While we may think it terrible at times, this just might
be the price companies pay for "slave labor"---sacrifice
control.

[jody]

38. More serious is "only three companies in the world" and in China portends disaster for US mfg. n/t

[Greyhound]

40. More accurately; Why Apple won't control it's factories.

The Big Lie is re-stated again. Share holders want slave labor and a brutalized, repressed work-force, they always have.

[alfredo]

46. I wonder if Dell or HP audit their suppliers for labor and environmental

compliance?

We need to support any efforts in that direction, no matter how modest.


Apple did respond to our environmental concerns and should be applauded for that. We should say that auditing for abuses is a good start, keep it up. Make China and Alabama realize it is good business to treat your workers and your environment with respect.

[IDemo]

51. HP appears to be making a good attempt

http://www.hp.com/hpinfo/globalcitizenship/gcreport/supplychain/perspectives.html

[alfredo]

52. Good for them.